Borrowing costs for consumers and companies will rise as efforts to revive confidence in Libor increase the number of banks involved in setting the rates, which determine more than $300 trillion of securities.
A higher number of lenders will include smaller, weaker institutions that pay more to borrow, according to James Edsberg at Gulland Padfield, a London-based financial services consultancy. Euribor, the benchmark for interbank deposits in euros, is set by 43 banks and has been fixed higher than euro Libor, determined by 15 lenders, by an average 5.7 basis points since March 2009, according to data compiled by Bloomberg.
"If you expand the panel by including banks beyond the largest ones, you will boost borrowing costs," said Edsberg.
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